GEC offers over $4 billion for Fore Systems

PITTSBURGH  General Electric Co. plc of Great Britain has suddenly made itself look like a serious internetworking contender by offering $4.2 billion in a cash tender offer for Fore Systems Inc. (Pittsburgh), a pioneer of asynchronous transfer mode switching technology.

GEC made its initial foray into the U.S. broadband networking market in early March when it offered to acquire OEM Reltec Inc., a digital loop carrier. GEC also grabbed European expertise in circuit-switched networks by acquiring Marconi Communications' Signaling System 7 and call-control product line. By combining Fore's expertise in ATM and Internet Protocol (IP) switching with Reltec's fiber backbone expertise and the GEC-Marconi SS7 software, GEC in theory could pull together a strong suite of technologies for both telecom and cable-TV carriers.

Fore has been mentioned as an acquisition target for a few years, with Lucent Technologies Inc., Newbridge Networks Inc. and Intel Corp. mentioned in the past as possible suitors. Ironically, since selling off many of its subsidiaries, Newbridge (Kanata, Ontario) is itself becoming an acquisition target, with several analysts predicting Newbridge would be sold later this week. Intel had expanded its ties to Fore in recent months, but Intel executives explicitly rejected any moves to enter broadband switching markets as a systems supplier.

A source at one close competitor to Fore expressed complete surprise at the GEC offer, saying "we were hearing about European interests, but GEC wasn't on anyone's long list, let alone short list." The offer is attractive to Fore, since the $35-per-share price represents a 43 percent premium over Fore's closing price on April 23.

Fore's per-share prices, often dipping below $25 in recent months despite racking up revenues of $632 million and profits of $50.9 million in 1998, reflects the perception that Fore is locked in an ATM niche  a Wall Street view that is dated at best. Fore has consistently expanded its high-layer IP switching and routing expertise from the 1995 days when it acquired Advanced Networking Technology Inc. and Alantec Inc., to its late 1998 acquisition of Berkeley Networks Inc. Yet Fore's advanced abilities in policy-based IP networking control often has been subsumed in the perception that the company is an ATM-only specialist.

Tom Gill, president and chief executive of Fore, will continue in his position, managing Fore as an independent wholly-owned subsidiary. No layoffs of Fore's 2000 employees are anticipated, though some consolidation of development and marketing staffs can be anticipated in the future.